Cuervo - the #1 Tequila company at discount
Cuervo is the leading Tequila producer in the world and provides at the current price an attractive investment in this depressed Spirits industry
This stock has about only 500m USD of float (14% of total capitalization) and is trading mainly on the Mexican stock exchange, as such I decided to post this only on wintergems.com without sending an email abroad nor link it to social platform. Only avid readers monitoring wintergems.com will caught this post.
The article constitutes my personal views and is for entertainment purposes only. The main goal of this article is to log my personal views. Nothing in this article or these posts in this blog should constitute an investment advice. The projections and estimates provided here should be considered as purely speculative. Do your own model and projections. Please refer to the disclaimer at the end of this article for more details.
Disclosure: I started to accumulate into Cuervo a few weeks ago buying at 19.5 pesos. This was the lowest lows (besides April 2025 Liberation day) since Cuervo started to trade in circa 2017. Since the 3Q release last week, the stock has jumped a bit and I continue to accumulate.
Here are the Pros and cons of this investment :
Pros:
The Company trades at a very attractive EV/EBIT of 10.5 and a EV / EBITDA the ratio is 9.1.
Even in this current difficult environment of the Spirits industry, operating income over the last 12 month has risen 17% versus last year (Exhibit A) and should continue to grow in 2026.
The Tequila portfolio and the non tequila portfolio has grown 50% and 24% respectively in volume since 2017. Tequila sales almost double since 2017 (Exhibit B).
The super premium tequila brands 1800, Centanario and Dobel have more than double in volumes in the last 5 years and have reaccelerated this quarter and constitute now the largest segment in terms of sales and profitability (Exhibit C)
Jose Cuervo is the #1 Tequila brand with good prospect of growth in Mexico and RoW and stabilization in USA. In the last quarter, YoY has finally turned positive after 7 consecutive negative YoY growth (Exhibit D).
The rest of the Spirits portfolio have strong brands in Irish Whiskey and Rhum and these brands have been growing steadily since 2017. In the last quarter, YoY has finally turned positive after 8 consecutive negative YoY growth (Exhibit E).
The Company is the lowest leveraged Spirits company publicly traded with a net debt of only 9B pesos (about 500m USD) and a EBITDA/Debt of One.
Due to agave price coming down in recent years (main Tequila input), gross margin has followed an upward trend and should continue to grow to 60% according to management (currently 56%).
Management owns 86% of the shares and is a good capital allocator. They sold non core assets (Boost and LALO spirits) with significant gains and have reduce debt.
Mexico has one of the strongest demographic (Exhibit G) and Cuervo has a dominant market share (55% +) in Tequila in that country. Mexico is the #2 market of Tequila.
Cons:
USA is the largest market of Cuervo. The USA consumer market is weak. I strongly believe that the combination of deportation and tariff should lead to a stagflation of the USA economy and a drop in consumer spending in real terms. This should lead to a drop in volume of Spirits and US dollar relative to other currencies in the foreseable future. Although tequila has been the strongest growing Spirits in USA in the last 10 years, this popularity may not be enough to prevent low single digit decline in volume in USA.
Tequila is a competitive market with new entrants
Float is small (about 500m USD) limiting large funds to take a position. The stock trades in the Mexican stock exchange (and Frankfurt thinly traded) so a discount is expected
Around 80% of Spirits sales is related to Tequila brands. This adds some risks versus diversified companies like Pernod Ricard. To be more concentrated on Tequila is a strength since Tequila is the fastest growing Spirits since 2018 in the world (Exhibit F) with 7.2% CAGR, but also a risk if this growth stalls or goes in reverse.
Consider these risks before investing. The quarterly reports issued by the Company are clear and the management disclose valuable data. Do your own research before investing. Trade carefully. Thinly traded.
¡Salud!
Exhibit A
All other income or expenses were removed. Only operating income is included here.
Exhibit B
Exhibit C
Exhibit D
Exhibit E
Exhibit F
Exhibit G
Great work as so often. Thanks for the write-up.
It seems that Cuervo is fairly heavily geared towards tequila. Is that a risk in itself, e.g. consumer tastes moving away from Tequila towards wodka, gin, rum... ? Over the last few years its seems like Tequila became more popoular, but that does not always need to be the case?
Also, I found the point on lower agave pricing interesting - how do you track these and do you think input costs will be low for some time to come or move back up?